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The Hits and Misses for the Auto Industry from the Union Budget 2021-22

The recent Union Budget presented by Finance Minister Nirmala Sitharaman was an important one. The expectations were very high across industries as India is slowly recovering from the pandemic. This is especially true for the Indian automotive industry. The industry was already in crisis due to the introduction of GST, new insurance regulations, changing safety and emission norms. The pandemic only added fuel to the fire. The industry was expecting some announcements to boost demand by lifting consumer sentiments in terms of lower tax rates, reduction in fuel prices, incentives to buy electric vehicles, etc. Has the budget addressed it? Let’s find out all the important auto industry related points in the 2021 Union Budget.

Positives For The Auto Industry

New Scrappage Policy

The scrappage policy for motor vehicles was under development for a long time. The recent Union Budget provided some information about it. Under the new scrappage policy, private vehicles older than 20 years and commercial vehicles older than 15 years will be eligible for voluntary scrapping. However, the vehicles will still have to undergo a fitness test and re-register after 15 years. If a vehicle fails the fitness test more than three times, it will be sent for mandatory scrapping. How does this help? The whole idea here is to dissuade older vehicles from roads as a measure to curb pollution and reduce oil imports. This will also open doors for new vehicle sales as the Government is planning to incentivize buyers in the form of discounts or by waiving road tax/registration charges. This can be understood better, once we get more information on this.

Rs. 18,000 Crores For Public Transport

Given the health and environmental concerns, the Government is keen on expanding the metro rail network and city bus services to ensure last-mile connectivity. A sum of Rs. 18,000 crores will be pumped to finance, acquire, operate and maintain over 20,000 public buses through a Public-Private Partnership (PPP).

This move comes as a respite to the ailing commercial vehicle industry. We expect a boost in sales for the Medium and Heavy Commercial Vehicle segment.

Rs.1.18 Lakh Crore For Infrastructure Projects

The Government has allocated a sum of Rs.1.18 lakh crore for the Road Transport and Highway Ministry. This includes building 8,500 kilometers of highway, 3,500 kilometers of a corridor in Tamil Nadu, 1,300 kilometers in Assam, 1,100 kilometers in Kerala and 675 kilometers in West Bengal. This will boost sales of heavy commercial vehicles such as tippers and construction equipment.

Reduction In Customs Duty For Steel

The customs duty for steel has been reduced from 12.5% to 7.5%. As a result of this, automakers expect the input cost to go down which can then be passed on to the end consumer by reducing the vehicle cost and thus help in boosting the demand for automobiles.

What was missed:

No Reduction In GST

Currently, the GST for all automobiles is at the highest slab - 28%. The industry was hoping for a reduction in tax at least for the two-wheeler and entry-level cars to boost demand. But, there was no revision in the tax rates which leaves things at status quo.

Surging Fuel Price

The surge in petrol and diesel prices often dissuades the buyers from making a vehicle purchase. Currently, 70% of the petrol and diesel price is in the form of CESS, state and central tax. The industry was expecting a reduction in fuel prices to lift consumer sentiment.

No Incentives For Electric Vehicles

Given the push for electric mobility, there were no specific announcements for the promotion of electric vehicles (EV). The industry was expecting significant investment in the charging infrastructure and incentives for buying electric vehicles. There was also no announcement on the duty structure for batteries. A Lithium-ion battery fitted in an EV attracts a 12% GST, whereas the same battery when sold separately attracts 18% GST.

Hope this gives you the complete picture of the Union Budget in relation to the automobile industry.

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